According to Fred Harrison, a British author and economic commentator, the 18-year property cycle can accurately predict the next house price crash. The theory suggests that there is a pattern of property price ups and downs that repeats itself every 18 years. Harrison accurately predicted the housing market crashes in the early 1990s and 2008 using his own formula. He forecasted that the next crash would occur in 2026.
1. The 18-Year Property Cycle:
- Concept: Every 18 years, property prices experience ups and downs, ending with a significant downturn.
- Discoverer: Fred Harrison, a British author and economic commentator. He used this formula to predict the housing market crashes in the early 1990s and in 2008.
- Phases of the Cycle:
- 4 years: Market restarts its upward trajectory post-crash.
- 6-7 years: Modest growth (known as the ‘recovery phase’).
- 1-2 years: Mid-cycle dip.
- 6-7 years: Final boom phase where prices grow the most.
2. Current State of the Cycle (As of 2023):
- House prices rose by 27% from April 2020 to November 2022.
- Instead of continuing this boom, average house prices are now declining due to increased interest rates by the Bank of England.
- Harrison sees this decline as a temporary phase, caused by the aftermath of Covid and political unrest.
- He predicts the trend in house prices will remain upwards, reinforced by political policies and external factors.
3. Factors Influencing Prices:
- Covid’s Impact: Jacked up prices prematurely. Now, prices need to adjust and level off.
- Political Climate: The Tory Government’s anti-landlord policies and inconsistent approach to the housing market.
- Landlord Exodus: If more landlords sell, it may restore buoyancy to the market but might unbalance supply-demand, pushing rents higher.
- Upcoming Election: Property affordability will be a crucial voting issue.
- Inflation’s Role: Property, especially land, becomes a safe bet against inflation.
4. Harrison’s Forecast for 2026:
- He remains confident in the 18-year cycle theory, predicting a property market crash in 2026.
- Predicts house prices will increase by at least 20% before 2026, followed by a severe crash.
- Expects a recession surpassing the 2008 crisis, with exact details on the rate of the house price collapse being uncertain.
- External challenges include climate change-induced migration, political instability, and potential military conflicts.
5. Potential Cycle Breakers:
- Harrison believes only events more impactful than Covid-19 or interest rate hikes can break the cycle. Possibly something as significant as a world war.
- Politicians can slightly influence the trends but cannot fundamentally alter the house price trend under the current property rights and tax policies framework.
Takeaway: The property market is complex and influenced by a multitude of factors. The 18-year cycle theory, while it has accurately predicted past downturns, is a guideline and not a surefire prediction. Like all investments, property carries risks, and it’s crucial to be informed and cautious.